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Costs and cash: a new directive for today’s CFO

Deloitte has just released the findings from their latest CFO Survey. Not surprisingly the results were pessimistic to say the least. The report identified that the single strongest priority for 50% of CFO respondents, who ran UK facing businesses, was to reduce costs.

When comparing the latest Deloitte with a similar report run by Deloitte this time last year (in which the majority of respondents were preparing their growth initiatives for when the market recovered), we are presented with a polar-opposite outlook of UK and global business inside a one year time frame. The potential break-up of the EU and the need for further cost cutting initiatives were two stand-out priorities for today's CFO.

The study noted that "a turbulent macro backdrop has led to a significant scaling back of CFOs' expectations for corporate expenditure" in which a majority of CFOs anticipate that due to continued declining revenues and increased margin erosion, capital expenditure, hiring and discretionary spend will be squeezed further over the next 12 months to prepare for the unknown.

This perilous macroeconomic outlook, coupled with stagnating growth among major corporates, is likely to see much of the threat posed by the second half of 2011 borne out. Further savings will be required but businesses will have to work much harder to realise them as they are likely to come from previously untapped sources. In 2008, the easy fat was cut after a decade of plenty. Many businesses made the squeeze and came out leaner. 2012 will not be the same. Few if any 'easy wins' exist. There is still fat to cut. But CFOs will need to be far smarter to extract it and not cut into the muscle of the business (hindering operational capability as a result). And these costs are not going to be where management has traditionally assumed them to be.

Businesses will have to look within their supplier community if costs are to reduce, but this year they will also be exploring more rigorously what they buy, how they buy it and will think much harder about what they really need. In short, businesses will be forced, finally, to get on top of the costs which are largest, but least visible to them - non-core, or indirect, costs.

In challenge, of course, there is opportunity, and those who proactively address the issues and find the right solutions will see themselves catapulted into a position of leadership once the outlook becomes a little brighter.

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I truly wonder if anything momentous will occur in one of the largest indirect categories? The fruits are so low, they are nearly touching the ground. Hotel Spend is 40% of T&E; and multinational companies are overspending by billions. I can't think of any significant CFO directive that has impacted how this spend is managed. If the Deloitte study is correct, I'll be delighted (as will shareholders), but not optimistic.

Alan Longland

I just find it so depressing that they should be so unimaginative and predictable. What do these highly paid CFOs think their companies have been doing for the last n years - and if not, why not?